Oil firms float finished fuel products on Arabian Sea as demand slumps

US Oil futures touched an unprecedented negative pricing on Monday over low demand and scarce storage. Closer home Indian refiners are facing a similar issue with their refined products, forcing companies like Bharat Petroleum Corporation (BPCL) to float some products in the Arabian Sea.
This is not the first time oil companies have used floating storage, however, officials point out using this option due to a large scale slump in demand and fully utilized tankages is a first.
"We are floating products like motor spirit and reformates," said a senior BPCL official. "These are in chartered ships, floating in the Arabian Sea. They will either will go to exports or be brought back for internal consumption depending on demand."
The official pegged the volumes to be lower at a few thousand tonnes of different products.
Since the nationwide lockdown was announced in March, India's fuel consumption has taken a major hit. Most industry executives said demand for petrol and diesel fell to a third of the normal, while demand for aviation turbine fuel (ATF) is now negligible, following the suspension of international and domestic flights.
The decline in demand has forced oil companies to run refineries at lower utilisation levels.
"Right now, the utilisation for refineries is at 50 to 60 per cent," the official quoted earlier in the story said.

Industry executives remain hopeful with that factory and agricultural work now resuming, demand for petrol and diesel will improve.

Achilles heel: High oil prices to complicate India's inflation, says report

Economy News
The surging price of oil is an Achilles heel for the Indian economy, complicating its inflation, current account, fiscal balance and currency outlook, a market report by Singapore's DBS banking group has said.

"The sharp rally in oil weighed on all asset classes; USD-INR jumped to 69.87 high before closing slightly lower, while equity markets ended in red," said the report by Economist Radhika Rao and FX Strategist Philip Wee of the DBS Group Research

For bond markets, the worry is two-pronged with the concern being that high oil prices might pose a fresh risk to the fiscal math, if subsides return, by extension requiring higher borrowing, said the duo.
Also, pipeline inflation risks due to high oil prices further raise the hurdle for rate-cuts.
The Reserve Bank of India's minutes from the April meeting had already left the market divided-- some see members as keeping the door open for rate cuts on worries over growth, whilst rest see the RBI cautious over inflationary risks, said Rao and Wee.

"These themes are likely to keep 10-Year INR bond yields (generic) above 7.45% this week, with break below to be shallow," said the duo in the report.

"2028 paper tested past 7.6% yesterday (Monday) and is likely to move in the higher 7.55-7.65% band this week.


 We had noted last week that short-tenor yields (1Y-2Y) have already bounced off lows; nonetheless sharper jump in 10Y yields saw the curve return to a widening bias," the report said.